Kelington in sweet spot with global chip shortage

The firm’s current tender-book stands at RM900m spread equally across Malaysia, Singapore and China


KELINGTON Group Bhd is poised to record another year of higher orders in the financial year 2021 (FY21), building upon the RM490 million all-time high order secured in FY20, according to Kenanga Investment Bank Bhd.

Its analyst Samuel Tan stated that Semiconductor Manufacturing International Corp (SMIC) has continued to award more jobs with the latest one secured in December which is expected to keep Kelington busy till June excluding ongoing 2021 tenders.

“Being the incumbent, we believe Kelington has the advantage in winning the 2021 bids which will consist of ultra-high purity hook-up in all four SMIC fabs,” Samuel noted in a recent report on the company.

It’s liquid CO2 (LCO2) plant’s utilisation picked up from 50% to 100% due to strong demand from Singapore, leading to a higher average selling price (ASP).

“Halal certification for its LCO2 is expected to be secured in a month’s time, facilitating its plan to penetrate the food and beverage (F&B) segment. Hence, we believe there is room for more ASP hikes,” he added.

Demand for semiconductor components has led many wafer fab players to expand capacity this year with Kenanga expecting 2021 to be another record year.

Kelington has also secured sub-contract jobs from Taiwan Manufacturing Semiconductor Corp via a partner as well as Micron which is looking to expand due to the global memory shortage.

Kelington’s current tender-book stands at RM900 million spread equally across Malaysia, Singapore and China.

Being regarded as a preferred vendor among large multinational- companies, Kelington is in a favourable position to benefit from various ongoing expansions by the likes of Western Digital Penang (announced RM2.3 billion investment), Micron Singapore (new fab construction) and Lam Research.

The halal certification, Kenanga added, will further increase demand for its LCO2 as the group penetrates the F&B industry.

“Hence, we believe there is room for more ASP hikes,” noted the research outfit.

Samuel added that Kelington expected to maintain its FY20E-21E earnings due to its uninterrupted operations at all its 17 sites in Malaysia have been ongoing as usual despite the Movement Control Order 2.0 (MCO 2.0) as the group was granted approval by Ministry of International Trade and Industry under essential services.

“We maintain ‘Outperform’ call with a higher target price (TP) of RM3.10 (previously RM2.30), based on higher FY21E PER of 32x (previously RM23.6x), representing +1SD from the three-year mean.

“We believe Kelington deserves to be traded at a higher multiple due to its exclusive exposure to the front-end semiconductor boom, which is very rare given that Malaysia is a back-end centric market,” he said.

Risks to the call include slower revenue recognition due to Covid-19, a downturn in semiconductor sales and delay in LCO2 ramp up.